Italy Dissents in G7 Meeting, Euro Collapses

The Usd rallied across most of the G10 as Europe scrambles to devise a uniform solution to the financial crisis. The EurUsd traded below the 1.34 level for the first time since October 2007, while the UsdJpy rose 84 pips following the general trend in the carry trade. The GbpUsd declined 62 pips to the 1.70 level putting the sterling at levels haven’t seen since 2003. Equity markets experienced another volatile trading session with prices up and down several hundred pts, and finally closing negative on the Dow down 128pts. Bond deleveraged as Traders suspect that govt. debt inventory will rise on the heels of this bailout plan. The 2yr treasury rate increased 10bps to 1.6%, while the 10yr followed suit wider by 9bps putting the return at 3.8% before inflation. Commodities decreased with oil down 6.6% to $80bbl, and gold down 7.07% to 848. Oil has moved very much in tandem with the equity indexes, and speculators are forced to scale back risk by reducing long position in certain sectors.

The UK has placed a bit of pressure on the ECB to further intervene in current economic situation in Europe. The ECB has expressed a very steadfast view regarding their role in providing assistance to banks and members of the financial sector. ECB member Juncker cautioned markets “Not to anticipate too much ahead of today’s G7 consultations.” Italy Giulio Tremonti told reporters before the talks that they won’t sign the G7 agreement in its current form, they consider it “too weak.” The Euro plunged following this news, and is likely to continue this downward trend until the EU takes a unified position. The EurUsd is likely to trade through the $1.30 level before year-end, and it is probable the sterling will fall to 1.65 by the end of Q4.

AC Markets
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